Government Policies Toward Competition • Terms to know • Interlocking directorate • Antitrust legislation • Merger • Conglomerate • Deregulation
Reading objectives • 1. What is the difference between interlocking directorates and mergers? • 2. What is the purpose of federal regulatory agencies? • 3. How has some regulation hurt consumers?
What is the history behind the Antitrust Legislation? • Industrial expansion after the Civil War fueled the rise of big business.
Who was the main reason for Antitrust legislation? • John D. Rockefeller and Standard Oil. What did Rockefeller do to his competitors? • Rockefeller drove competitors out of business and pressured customers not to deal with rival oil companies • He placed members of standard Oil’s board of directors onto the board of a competing corporation.
Vocab • Interlocking directorate: A board of directors, the majority of whose members also serve as the board of directors of a competing corporation
Sherman Antitrust Act • Started in 1890 due to public pressure against Rockefeller and his oil business • The law sought to protect trade and commerce against unlawful restraint and monopoly.
Vocab • Antitrust legislation: federal and state laws passed to prevent new monopolies from forming and to break up those that already exist.
Clayton Act • Started in 1914 to sharpen the Sherman Act • The Clayton Act prohibited or limited a number of very specific business practices that lessened competition substantially
Vocab • Merger: a combined company that results when one corporation buys more than half the stock of another corporation and, thus, controls the second corporation
What are the three types of mergers? • (1.) horizontal mergers: when two corporations merge that are in the same business • Example: When a hamburger business buys another business • (2.) Vertical mergers: When corporations involved in a “chain” of supply merge • Example: a paper company buying the lumber mill that supplies it with pulp
What are the three types of mergers? • (3.) Conglomerate merger: a large corporation made up of smaller corporations dealing in unrelated businesses • Example: Procter & Gamble is a multinational conglomerate. P & G produces Cover Girl, Pert Plus, Clearasil, Folgers Coffee, Pringles potato chips, Jif peanut butter, Crest toothpaste, Nyquil, dawn dish soap
Regulatory Agencies • Besides using antitrust laws to foster a competitive atmosphere the government uses direct regulation of business pricing and product quality • These agencies exist at the federal, state, and even local levels • Examples:Federal Trade commission, Food and Drug Administration, Federal Communications Commission
Vocab • Deregulation: reduction of government and control over business activity
When did deregulation take place? • In the 1980’s and 1990’s many industries were deregulated. • The belief behind this was that it would actually decrease the amount of competition in the economy • Example the FCC letting up which caused the entry of pay-TV, Cable, and satellite systems